Operations Management1 Lecture 9 (Productivity) Presenter: ISMATULLAH BUTT PhD (Candidate) Productivity 2 Lecture Plan: What is productivity? Importance of productivity Productivity measures Factors impacting productivity Productivity improvement techniques The Economic System 3 Inputs Processes Outputs Labor, The U.S. economic system Goods capital, transforms inputs to outputs at and management about an annual 2.5% increase in services productivity per year. The productivity increase is the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%), and management (52% of 2.5%). Feedback loop What is Productivity ? 4 Productivity is the quantitative relation between what we produce and what we use as a source of produce them. So, Productivity is the arithmetic ratio of output to the amount of input. PRODUCTIVITY = Output / Input. Productivity refers to the efficiency of the production system. Why Productivity is Important 5 Units produced Productivity = Input used Measure of process improvement Represents output relative to input Only through productivity increases, our standard of living can improve Productivity Challenge 6 Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve this measure of efficiency. Point to remember: Production is a measure of output only and not a measure of efficiency. Productivity Measures-Types 7 Single-factor measures Output / (Single Input) Multi-factor measure: Output/ Labor+ Capital + Machine All-factors measure Output / (Total Inputs) PRODUCTIVITY MEASURES 8 1. PARTIAL PRODUCTIVITY MEASURE (PPM) PARTIAL PRODUCTIVITY= Total output / individual input. (a) Labor Productivity=Total o/p / Labor input (b) Capital Productivity = Total o/p / Capital input (c) Material Productivity = Total o/p / Material input (d) Energy Productivity = Total o/p / Energy input. 2. TOTAL PRODUCTIVITY MEASURE (TPM) = Total tangible o/p / Total tangible i/p Tangible o/p= Value of FG & Partial units produced, dividend from securities, interest, other incomes Tangible i/p = Value of ( human , material, capital, other inputs) Productivity Measures 9 Single-factor measures: i. Output /Labor ii. Output / Machine iii. Output / Capital iv. Output/ Energy Multi-factor measure: Output/ Labor+ Capital + Machine All-factors measure: Output/ All inputs Single Factor Single-factor Output Output Output Output measures Labor Machine Capital Energy If we produce only one product, the numerator can be either the total units of the product or the total $ value of the product. If we produce several products, the numerator is the total $ value of all products. The denominator can be the units of input or the total $ value of input. 10 Example: Single Factor Productivity 11 10,000 Units Produced Sold for $10/unit 500 labor hours What is the labor productivity? Labor rate: $9/hr Example: Labor Productivity 12 10,000 units / 500hrs = 20 units/hr (10,000 units * $10/unit) / 500hrs = $200/hr 10,000 units / (500hrs * $9/hr) = 2.2 unit/$ (10,000 units * $10/unit) / (500hrs * $9/hr) = 22.22 NB: The last one is unit-less productivity Some Single Factor Measurements 13 Labor Productivity – Quantity (or value) of output / labor hrs – Quantity (or value) of output / shift Machine Productivity – Quantity (or value) of output / machine hrs Energy Productivity – Quantity (or value of output) / kwh Capital Productivity – Quantity (or value) of output / value of input All Factors Productivity 14 All-factors = Goods or Services produced measure All inputs used to produce them If we produce only one product, the numerator can be either the total units of product or total $ value of the product. If we produce several products, the numerator is the total $ value of all products. Usually, the numerator is the total $ value of all outputs. The denominator is total $ value of all inputs. All Factors Productivity-Example 15 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $30,000 Overhead: $15,500 Example : All-Factor Productivity 16 Output AFP = Labor + Materials + Overhead (10,000 units) * ($10) AFP = (500)*($9) + ($30,000) + ($15,500) AFP = 2.0 What are the factors that affect productivity? 17 Training Methods Technology Management Factors Affecting Productivity 18 All the following four elements of productivity have to be productive in an organization? Labor Machines Delivery System Factors Affecting Productivity 19 Each productive element mentioned may be affected by one factor or many factors which directly affect the whole productivity or the productivity of one single element or more Each element may affect another element or directly affect the over all productivity Each element may be affected by internal factors or external factors Factors Affecting Productivity 20 Internal Factors: 1. Managers 2. The way of management 3. Coworkers 4. Rules and regulations of the company 5. Working days Factors affecting productivity of labor 21 Internal Factors: 1. Working hours 2. Place of carrying out the job (office, factory ,….) 3. Tools 4. Technology 5. Machines 6. Feeling of interest 7. Motivation 8. Satisfaction (salary , insurance, ……) 9. Development and training 10. Career vision (upgrading , dedication ,….) Factors affecting productivity of labor 22 External factors: 1- country rules and economic situation 2- traffic 3- family 4- distance between workplace and house 5- weather 6- culture 7- health care 8- population (may affect positive or negative ) Factors affecting machines productivity 23 1- technology 2- durability 3- maintenance 4- labor (operator of the machine) 5- proper place 6- economic situation (spare parts , …) 7- operating hours Factors affecting the system productivity : 24 1- technology 2- operators (to what extent they can use it and understand the system ) 3- maintenance and updates 4- the connection stability and power Factors affecting the productivity of delivery system : 25 1- the type of the delivery machine 2- maintenance 3- machine user 4- fuel stability 5- synergy between delivery department and other departments 6- store system 7- company or store location 8- drivers 9- traffic situation PRODUCTIVITY IMPROVEMENT TECHNIQUES 26 1. TECHNOLOGY BASED 2. EMPLOYEE BASED.’ 3. MATERIAL BASED. 4. PROCESS BASED. 5. PRODUCT BASED. 6. MANAGEMENT BASED. Assignment on Productivity 27 1. A company that makes shopping carts for supermarkets recently purchased new equipment, which reduced the labor content needed to produce the carts. Information concerning the old system (before adding the new equipment) and the new system (after adding the new machines) includes: Old System New System Output/hr 80 84 Workers 5 4 Wage $/hr 10 10 Machine $/hr 40 50 a) Compute labor productivity for both the Old System and the New System. b) Compute AFP productivity for both the Old System and the New System. c) Suppose production with old equipment was 30 units of cart A at a price of $100 per cart, and 50 units of cart B at a price of $120. Also suppose that production with new equipment is 50 units of cart A, at a price of $100 per cart, and 30 units of cart B at a price of $120. Compare all-factor productivity for the old and the new systems.